1. 2010 UBO/UBU Conference Health Budgets & Financial Policy 1 Briefing: Accounts Receivable Date: 24 March 2010 Time: 1610–1700

2. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Agenda Accounts Receivable Policy/Implementation Current Status Goals and Objectives – Accounting – Assertion (auditability) Accounts Receivable Management – Revenue Recognition – Debt Management (DCIA) – Methodology for Allowance for Doubtful Accounts – Data Quality – Standardization of Proprietary vs. Budgetary Entries Accounts Receivable Tools – TPOCS – CHCS (pending) – DFAS AR Tool – Monthly Report on Debt (MRD) – Treasury Report on Receivables (TROR) – Service initiatives Accounts Receivable – Going Forward 2

3. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Policy/Implementation Accounts Receivable Policy Memorandum – Policy signed on May 8, 2008 – http://tricare.mil/ocfo/mcfs/ubo/policy_guidance/letters.cfm http://tricare.mil/ocfo/mcfs/ubo/policy_guidance/letters.cfm Purpose – Establish policy for the recognition (“as rendered”), classification, recording, aging, collection, disposition and reporting of accounts receivable in order to improve the accuracy of financial statements and prepare the Defense Health Program (DHP) – funded activities for audit readiness – Compliance with Federal Management Regulation and Generally Accepted Accounting Principles 3

4. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Policy/Implementation (con’t) Implementation Date – 1 October 2009 (for Fiscal Year 2010 reporting purposes) Title 10 United States Code, Chapter 55, Section 1095 – This policy does not modify the ability of the Services to use monies collected in the fiscal year collected – 10 U.S.C. 1095(g) reads as follows: “Amounts collected under this section from a third-party payer or under any other provision of law from any other payer for health care services provided at or through a facility of the uniformed services shall be credited to the appropriation supporting the maintenance and operation of the facility and shall not be taken into consideration in establishing the operating budget of the facility.” 4

5. 2010 UBO/UBU Conference Turning Knowledge Into Action Current Status TMA TPOC A/R Reports – – Currently in Beta testing Phase – Scheduled deployment March 2010 – Attachment-TPOC report Three components (SMA Army, SMA Navy and SMA Air Force) accounts receivable implementation updates – SMA Army Implementation Initiatives – SMA Navy Implementation Initiatives – SMA Air Force Implementation Initiatives DFAS Accounts Receivable Development and Implementation – MRD/TROR initiatives – AR Tool implementation for population of MRD and TROR reporting Initiation of meetings to address CHCS receivable reporting issues 5

6. 2010 UBO/UBU Conference Turning Knowledge Into Action Goals and Objectives – Accounting Recording TPOCS receivables on an “as rendered” basis Recording TPOCS receivables to the core general ledger at field level Development of central server for TPOCS accounts receivables transactions for a consolidated view to provide reconciled subsidiary receivable ledgers Recording Allowance for Doubtful Accounts methodology for Bad Debt and Contractual Allowances in accordance with GAAP Future initiatives to enhance the accounts receivable reporting in CHCS Analysis of current accounts receivable data for all components and facilitate “clean up” of existing balances Recording of interest penalties and administrative fees Improve DoD Metric scores – (moving from Red to Green) 6

7. 2010 UBO/UBU Conference Turning Knowledge Into Action Goals and Objectives – Assertion Define accounts receivable population records and related transactions which provide adequate audit trail Reconcile accounts receivable population to general ledger balances – Field Level (MTF) – Consolidated (Rolled up to component level) Complete audit trail of medical billing invoices to medical records – Coded medical encounter – Accurate medical fee per encounter – Allowable chargeable encounter/Patient eligibility – Coding affects more than AR 7

8. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Management 8 Revenue Recognition – All Defense Health Program (DHP) funded activities will recognize and record a receivable when it establishes a claim based on goods or services provided (“as rendered”) – Financial statements have two A/R classifications: Intragovernmental and Nonfederal (public) – TPOCS is nonfederal Debt Management (DCIA) – Working with OUSD(C) to revise policy in the FMR to further clarify rules for transferring medical debt to DFAS for collection Data Quality – Old A/R – Clean up and reconciliation of accounts receivable balances – New A/R – Accurate billing and recording of accounts receivable, collections, credits, allowances, adjustments and write offs

9. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Management (con’t) 9 Standardization of Proprietary vs. Budgetary Entries – Recommended accounting entries are: Debit USSGL 1310 (Accounts Receivable) and credit USSGL 5200 (Revenue from Services Provided) – The standardized entry will provide consistency for all components without the potential for an appropriation violation and maintain USC 1095 flexibility – The budget authority is only increased when the account receivable is collected – Recognition of revenue and the establishment of an accounts receivable will not effect the budget authority

10. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Tools TPOCS – Currently TMA is testing and evaluating test data for new reports – Newly developed reports provide accounts receivable reports by aging buckets consistent with AR policy requirements – Release of new TPOCS report is currently scheduled for all sites 10

11. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Tools (con’t) CHCS – Reporting is currently manually combined with TPOCS report to compile monthly accounts receivable data for components – Aging buckets are not consistent with AR policy – Holding issues that prohibit recognition of revenue when services are rendered – TMA is currently initiating meetings to address receivable issues 11

12. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Tools (con’t) DFAS AR Tool – DFAS developed an interim solution for reporting medical accounts receivables – DFAS implemented the AR tool to all components prior to October 1, 2010 – AR Tool gathers the accounts receivable balances from source systems – MRD is populated with the uploaded receivable balances by aging bucket on a monthly basis – Components and TMA continue to work with DFAS to alleviate AR tool functionality issues 12

13. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Tools (con’t) MRD – MRD is populated at DFAS-IN by uploaded data provided by the components on a monthly basis via the AR Tool – The receivables are recorded by required aging buckets in a summary display – DDRS journal vouchers are generated quarterly to record the accounts receivable by component based on the results of the MRD process – MRD and the supporting documentation provide the backup for the accounts receivable financial statement line item TROR – TROR is populated monthly by the input provided in the AR Tool process – We reconcile the MRD to the TROR monthly 13

14. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable Tools (con’t) Service Initiatives – SMA Army Accounts receivable analysis to reconcile feeder input with MRD, general ledger and financial statements. Current development of methodology for Allowance for Doubtful Accounts calculations and reporting Developed supporting documentation report for inputting monthly accounts receivable recording process to AR Tool on a consolidated basis – SMA Air Force Development of accounts receivable reports to assist with the monthly analysis and provide the source documents for the AR Tool process Currently developing methodology for Allowance for Doubtful Accounts calculations and reporting – SMA Navy Development of Allowance for Doubtful Accounts tool to provide an accurate methodology for calculating allowance amounts based on various criteria Development of ARM module process to record accounts receivable in the general ledger 14

15. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Going Forward Accuracy in reporting – Accounts receivable reports and financial statements will be more accurate than what we have now – Reports will include aging balances and number of claims – Visibility of all accounts (including TPC accounts receivable older than prior year 2) Leveraging best practices to move toward standardization Central reporting will improve as funded systems change request have been submitted to: – Provide consolidated and centralized accounts receivable data from TPOCS and CHCS/AHLTA (both MSA and inpatient TPC), and – Calculate interest in both MSA and TPOCS 15

16. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Going Forward (cont’d) SMA Audit Committee will continue to work with the SMA – Army, SMA – Navy, and SMA – Air Force to establish procedures for recording AR Provide your UBO Service Manager and Service RM monthly AR data in the following categories: – Intragovernmental CHCS, MAC – Nonfederal CHCS, TPOCS, MAC 16

17. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Comments Comments/Questions 17 “Thank You!”

18. 2010 UBO/UBU Conference Turning Knowledge Into Action Back-up Slides 18

19. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Revenue Recognition (continued from page 8) Receivables are recorded from the time the goods or services are rendered A receivable must be recorded in the accounting records in the period in which claims are established Allowance for Doubtful Accounts (concepts): – Contractual Allowance (fee schedule) – Uncollectible Allowance (aging history) Each Service will provide training and guidance in the application of these concepts 19

20. 2010 UBO/UBU Conference Turning Knowledge Into Action Establishment of Accounts Receivable What is the “first day” of an account receivable? – Inpatient: 30 calendar days after the date of discharge – Ambulatory: 15 calendar days after the date of encounter (outpatient, laboratory, pharmacy, radiology) Why is an accounts receivable established? – Government is owed as soon as service is provided – Some invoices can be immediately generated (family member rate) – Some encounters/services need to be coded prior to generating invoice – Many invoices are not generated in a timely manner (unbilled) – Ensure inclusion of medical accounts receivable on the financials statement 20

21. 2010 UBO/UBU Conference Turning Knowledge Into Action Establishment of Accounts Receivable (continued) Calendar versus business days – Decided to use calendar days as it is easier to calculate (no need to track federal holidays or training days) – Financial statements are calendar days not business days Final Decision – First day of Accounts Receivable – 30 calendar days after termination of inpatient service – 15 calendar days after termination of outpatient service (APV’s, prescriptions are filled, laboratory tests are certified) 21

22. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Third Party Collections Accounts receivable will be recognized and recorded, as follows: – Inpatient Institutional Charges 30 Calendar Days post discharge – Outpatient Services Encounters 15 Calendar Days after termination of encounter – Outpatient Ambulatory Procedures Encounters 15 Calendar Days after termination of encounter – Ancillary and Pharmaceuticals 15 Calendar Days after test/study/dispense 22

23. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Medical Services Account Accounts receivable will be recognized and recorded, as follows: – Intragovernmental Inpatient Institutional Charges – 30 Calendar Days after the second month end after discharge Outpatient Services Charges – 15 Calendar Days after month end 23

24. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Medical Services Account (continued) Accounts receivable will be recognized and recorded, as follows: – Nonfederal Inpatient Institutional Charges – 30 Calendar Days post discharge Outpatient Services Encounters – 15 Calendar Days after termination of encounter Outpatient Ambulatory Procedure Visits – 15 Calendar Days after termination of encounter Ancillary and Pharmaceuticals – 15 Calendar Days after test/study/dispense 24

25. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Medical Affirmative Claims Accounts receivable will be recognized and recorded, as follows: – When the Medical Treatment Facility (MTF) receives the adjudication letter from the Attorney (e.g., legal entity pursuing the claim) with the amount and date such funds can be expected to be available (e.g., realization occurs for the account receivable to be booked). Example: Medical bill is sent to the Attorney on 25 November 2009 Attorney pursues the claim Attorney signs and dates the adjudication letter on 2 April 2010 MTF receives adjudication letter from the Attorney on 4 April 2010 Account receivable is recorded as of “the DATE on the adjudication letter” (2 April 2010) 25

26. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Contingency Medical Affirmative Claims are considered contingencies and are, therefore, not recorded as accounts receivable until an adjudication letter is signed and dated by the attorney who was pursuing the claim Contingency – A potential or pending development that may result in a future gain to the company, such as a successful lawsuit against another company. Conservative accounting practice dictates that contingencies should not be booked, as potential gains or losses, although a footnote disclosure of the particulars may be made. 26

27. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Interest Accrual (future) Interest Accrual – Accounts not paid within 30 days of the first day of account receivable – Collections received must first be applied to interest then to the principal. – Third Party Outpatient Collection System and Medical Services Account are not currently able to automatically calculate interest based on date of invoice – Additional information can be found at http://comptroller.defense.gov/fmr/04/index.html http://comptroller.defense.gov/fmr/04/index.html 27

28. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Revenue Recognition Intragovernmental receivables: – U.S. Coast Guard – U.S. Public Health Service – National Oceanographic and Atmospheric Administration – Department of Veterans Affairs – Other Federal Departments and Agencies 28

29. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Revenue Recognition (continued) Nonfederal receivables: – Department of Defense Civilians Overseas – Other Federal Civilians Overseas – Red Cross Overseas – Civilian Emergencies – State Governments – Foreign Governments – Third Party Collections Program – Cosmetic Surgery Procedures 29

30. 2010 UBO/UBU Conference Turning Knowledge Into Action Accounts Receivable – Aging of Receivables (continued) Interest begins to accrue: – Inpatient: 30 calendar days after invoice is tendered (printed/mailed) – Ambulatory: 30 calendar days after invoice is tendered (printed/mailed) [includes outpatient, laboratory, pharmacy, radiology] “First day” of reporting the account receivable is the date of the invoice 30